Green and growing

Each week, the Financial Post revisits the previous week’s episode of Dragons’ Den on CBC. Mary Teresa Bitti captures what the cameras didn’t and in the process provides a case study for readers, zeroing in on what pitchers and dragons were thinking and what the challenges for the deal are going forward.

The pitch Tarren Wolfe is excited. His latest business, Urban Cultivator, is getting traction with restaurants and chefs in Vancouver and Whistler, and he’s hoping his appearance on Dragons’ Den will make some big noise and help him take the startup to the next level. Urban Cultivator’s two products, kitchen and restaurant hydroponic growers, allow family cooks and professional chefs to grow their own herbs, micro-greens and vegetables indoors, all year round in the perfect conditions. Think of the appliance – the home version is about the size of a dishwasher and the larger, refrigerator size unit is for restaurants and commercial use – as an indoor garden that’s fully automated with watering and light cycles controlled by an intuitive computer interface.

“My wife has food allergies, so for the past 10 years we’ve had our own outdoor garden. We found that using what we grew ourselves or buying locally grown produce was much better for her diet,” Mr. Wolfe says. “I’ve been in the business of manufacturing hydroponic systems for the past 12 years to grow medicinal marijuana. With the technology and manufacturing capabilities we already had, we thought this was the perfect time to apply that to growing micro-greens and classic herbs. We’ve wanted to do it for the past six years but now everyone is more conscious of what they are eating and the impact transporting food has on the environment. It’s part of the dialogue now.”

Urban Cultivator was launched with partners Davin MacGregor and Myles Omand about 18 months ago. “We’ve really tried to take the guess work out of this and have them fully automated. We’ve put a lot of time into making these really easy to use,” Mr. Wolfe says. “Chefs lack time so if we can take all that maintenance out of the equation, then we’ll be more successful.”

They approached local chefs at higher end restaurants for input and that resulted in some early adopters. Tory Martindale, chef at the Four Seasons Whistler Sidecut Restaurant, was one of the first people Mr. Wolfe showed it to and his insights led to revisions that helped create the current units. It was a good move. In the company’s first three months, sales hit $200,000. Armed with that proof of concept, they entered the Den.

The deal The entrepreneurs asked for $400,000 in exchange for a 10% equity stake, effectively valuing the business at $4-million. They settled on a deal with Arlene Dickinson, owner of Venture Communications, in which she would receive a 20% stake in exchange for $400,000 worth of marketing services. “We are wrapping that deal up now,” Mr. Wolfe says.

“We’re deciding how to best go forward and that will depend on how we grow the business. We can ramp production up on our own, outsource overseas or approach an existing manufacturer and see if they can take it on. We’re also looking into the U.S., which is offering grants to establish manufacturing plants there.”

Meanwhile, Mr. Wolfe bartered with a local restaurant, Nicli Antica Pizzeria, for four commercial cultivators to supply the restaurant’s $2,000 budget of fresh basil and arugula in exchange for free rent and leasehold improvements to create a living produce aisle where he can sell fresh produce and cultivators. He is also meeting with Subway sandwich franchise to discuss a deal to place the cultivators in 800 locations and has negotiated a deal with Liquid Nutrition and its 100 stores. He’s also been in talks with Booster Juice, which may put a cultivator into its first location in Brazil.

The dragon’s point of view “This is on trend in terms of our concerns about food safety, handling and the transportation of food,” Ms. Dickinson says. “It makes perfect sense for consumers, who wants to have something in their homes to allow them to grow their own greens. I can see builders putting it into new homes and I hope that’s where it goes. The challenge will be scaling production and how they decide to move forward with manufacturing. They will also need to get more traction with restaurants. The idea is once the restaurants have cultivators then consumers will see them giving them exposure and credibility.”

An expert’s opinion “I thought the valuation was rich at $4-million and even at $2-million, which is where the deal landed,” says John Cho, partner, Transaction Services, KPMG Enterprise. “While I like it, I also don’t know how much of a market there is. On the residential side, it wouldn’t be for everyone but for people who value organic foods, yes. I see it as a novelty at this point.”

On the deal, he notes, “Arlene got a great deal. I don’t know that it was as good for the owners. They’ll have to make sure they are getting the value in services. I also think they may have missed an opportunity to land a deal with Jim Treliving, who could have put the units in his Boston Pizza restaurants and leveraged his contacts to get other accounts. Ideally, they should have tried to structure something with both Jim and Arlene.”